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<p> Capitulation by many EMD investors has created opportunities in many of the more resilient countries.<br />
We favor countries moving down the reform path and where there is significant impetus to reign in excessive government spending.<br />
Valuations have reached the extremes that allow a selective approach to EM to now represent a key part of an income-oriented portfolio.</p>
<p>Emerging markets (EMs) have endured a miserable year. Slowing Chinese growth, collapsing commodity prices, rising indebtedness and geopolitical turmoil have all taken their toll on fundamentals. The worsening EM story has, in turn, had a negative impact on capital flows, impacting performance both in absolute terms and relative to developed markets.</p>
<p>More recently, China’s devaluation has led to fears that deflation could be exported to the rest of the world. The haphazard nature of China’s policy response to the economic downturn has weakened investor resolve that Chinese authorities can engineer a "good" outcome. The problems do not end there. The Federal Reserve is stating a desire to tighten policy, prompting concerns that a continued rise in the U.S. dollar will undermine EM local returns.</p>
<p>Unsurprisingly, sentiment toward emerging markets has soured. The above trends are self-reinforcing, prompting many to call for EM to enter a protracted period of weakness. Given all the uncertainties, should investors simply ignore EMD altogether, or might a more selective approach to EMs produce better results?</p>
<p>It is far too late in the cycle to “give up” on emerging markets</p>
<p>Abandoning EMD altogether is akin to throwing the baby out with the bath water. The adjustment in EM assets is hardly new, and underperformance has been marked since at least 2012. Consider Brazil — a constant source of discouraging news. Brazilian equities, as measured by the Ibovespa, are down by 36% over the five years ending September 30 in local terms. For a U.S. dollar investor, however, depreciation of the Brazilian real has pushed the return to -71.7% over the period. Local rates in Brazil have risen to over 15%. Other markets — in USD terms — have also posted deeply negative returns. Russia, Ukraine, Turkey and Argentina have all endured periods of notable stress in the last 24 months.</p>
<p>Prices could, of course, move lower, but valuations suggest that EM challenges are well-recognized in the market. We fully expect a protracted period of emerging market economic weakness, but we are at a stage in the current cycle that demands a focus on dislocations and valuation. Many opportunities appear compelling. EM growth will be positive and will continue to exceed developed market growth (Exhibit 1), notwithstanding the risk of further downward growth revisions that have dominated this cycle (Exhibit 2). This is a recipe for further volatility, despite much-improved valuations.</p>
<p>Exhibit 1: IMF GDP growth forecast — advanced economies</p>
<p>Sources: Columbia Threadneedle Investments, IMF, 07/15</p>
<p>Exhibit 2: IMF GDP growth forecast — emerging economies</p>

<p>Updated throughout the day</p>
<p>October 15</p>
<p>Good evening everyone. SOE consolidation hopes, stimulus wishes, and a spooked-out Fed led Asian shares soaring today with the Hang Seng Index up 2%, the Shanghai Composite up 2.32%, and the Nikkei 225 up 1.15%.</p>
<p>European indices meanwhile appear to be on the up and up as well. The U.K.’s FTSE 100 has so far climbed 0.8%, Germany’s DAX has jumped 0.9%, and France’s CAC has surged 0.9%. As for Wall Street, it looks like they’ll be joining the party too. S&amp;P 500 futures are pointing to a 0.5% pop at the open while Dow and Nasdaq futures signal a 0.5% and 0.6% climb respectively.</p>
<p>Here’s what else you need to know:</p>
<p>Bank of England lays out “ringfencing” laws. In an effort to strengthen the U.K. financial system, the Bank of England laid out two proposals today, one on ringfencing and one on operational continuity. Under the former proposal, “ringfenced” banks will need to seek permission from the BOE to pay out dividends to its affiliates, as well as pay market rates for services rendered by its partners. The new rules will come into force in 2019. Wall Street Journal (paywall) / Bank of England</p>
<p>PBOC injects liquidity. With 70 billion yuan worth of liquidity set to drain this week, the People's Bank of China topped up the money markets today through an auction of 50 billion yuan worth of seven-day reverse bond repurchase agreements. Reuters</p>
<p>Hong Kong continues reign as most expensive place to rent office space. Annual Hong Kong office rent has apparently reached $255.5 per square foot, $5 more than last year’s showing, and easily eclipsing New York’s $153 and Tokyo’s $125. The pace of growth however has appeared to slow, but yeah, tell that to the tenants. SCMP (paywall)</p>
<p>Australian jobs surprise to the downside. After registering gains the previous four months, the Australian labor market lost 5,100 jobs in September, a huge contrast to the additional 9,600 jobs expected by analysts. Financial Times (paywall)</p>
<p>Bank of Korea keeps rates steady, slashes outlook. As expected, Korea’s central bank kept interest rates steady for the fourth month in a row. It did however, cut its GDP and inflation forecasts, with 2015 growth now expected to be 2.7% instead of 2.8%, while inflation is currently pegged at 0.7% instead of 0.9%. Bank of Korea</p>
<p>Sumitomo Mitsui Banking to issue green bonds. In a first for a Japanese megabank, SMBC is set to issue around $500 million worth of green bonds as early as today, with the proceeds meant to bankroll a variety of renewable energy projects. The five-year bonds are expected to carry a coupon of around 2%. Nikkei Asian Review</p>
<p>Volkswagen loses designated North American chief. Winfried Vahland was named to run the North America business three weeks ago after working for the car manufacturer for 25 years. Vahlan</p>

<p>Updated throughout the day</p>
<p>October 14</p>
<p>Good evening everyone. Economic data in the U.S. Wednesday did little to dispel the fear of deflation: producer prices in September fell 0.5%, the biggest drop in eight months, and retail sales were weak. The Fed’s survey of its districts, the beige book, revealed modest expansion but no wage pressures anywhere. Meanwhile, Wal-Mart shocked investors with a dismal outlook and nosedived, pulling down the Dow Jones Industrials 0.92% to 16,925, marking the first back-to-back drop this month. The S&amp;P 500 trimmed 0.48% to 1,994. And the U.S. 10-year note did just what you would expect in the face of this dismal economic news: yields fell below 2%, hitting a 5-month low at 1.97%. What was the Fed was saying about a rate hike?</p>
<p>Here's what else you need to know:</p>
<p>IPOS beware. Albertson’s scotched its $2 billion IPO scheduled for Wednesday but First Data soldiered on with its offering, lowering the price to $16/share, from the $18-$20 originally anticipated. The weather is getting rougher and rougher for IPOs. KKR must have been very anxious to price First Data, the largest processor of e-commerce transactions. Street Insider</p>
<p>Square braves the treacherous IPO market. The payment startup, led by Jack Dorsey – CEO at both Square and Twitter -- doesn’t appear to have a weather vane. The company is going where many tech companies have turned away from. Wall Street Journal (paywall)</p>
<p>Wal-Mart slammed after earnings outlook. Wal-Mart shocked investors by predicting a huge drop in earnings next year, with per-share profits to fall between 6% and 12% in 2017. Shares for the company plummeted 10% in response, a 3-year low and the worst drop for the company since 1988. The stock is now down almost 30% this year. Wal-Mart says profits are being sucked by the increase in employee wages. CNN</p>
<p>Volkswagen loses designated North American chief. Winfried Vahland was named to run the North America business three weeks ago after working for the car manufacturer for 25 years. Vahland is leaving the company due to differences about the organization in North America, not the current diesel engine scandal, he says. Wall Street Journal</p>
<p>First Jamaican writer wins Man Booker prize. Marlon James was awarded the prestigious writing award for his fictional account of the attempted murder of Bob Marley in 1976. The judges were unanimous in their decision to award "A Brief History of Seven Killings" because it "kept surprising the judges." The Guardian</p>
<p>Hillary Clinton emerges strong from first Democratic debate. That's the consensus. She even got a boost from rival Bernie Sanders who lambasted the media for spilling so much ink on Clinton's email controversy.</p>
<p>Sharp differences on Wall Street. Clinton would tweak while former Maryland Governor Martin O'Malley would re-introduce </p>

<p>A phenomenon that has caught plenty of market observers by surprise this year is the outperformance of the momentum factor over its value counterpart. Momentum can take on multiple forms and it is not limited to glitzy biotechnology and Internet stocks.</p>
<p>However, it is some of those glitzy Internet stocks that have driven the impressive returns accrued by the consumer discretionary group, this year's top-performing S&amp;P 500 sector.<br />
Don't Be Surprised<br />
"The strength of consumer discretionary stocks is not altogether surprising, given the strength of the labor market. Wage and salary growth is up 4.0% since last August, and consumers’ assessment of the job market is also favorable. According to The Conference Board, the spread between those stating that jobs are "plentiful" and those claiming that jobs are "hard to get" was 0.8 in September – the widest chasm in sentiment since the spring of 2008," said PowerShares, the fourth-largest U.S. ETF issuer, in a recent note.</p>
<p>Read more at Benzinga. <br />
Photo: B4bees</p>

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<p>Works from art greats including Picasso, van Gogh, Calder, Giacometti, Rothko, Degas, and Jackson Pollock will be auctioned in New York next month.</p>
<p>Sotheby's is hosting the November 4 event on the Upper East Side in Manhattan, reports the New York Post. The entire collection is worth more than $500 million, and Picasso's "Femme assise sur une chaise" is estimated to sell for up to $35 million. The pieces come from the collection of A. Alfred Taubman, shopping mall magnate and philanthropist.</p>
<p>For those who can't afford the pricey pieces, Sotheby's York Avenue galleries display most of the works free to the public between October 24 and 27.<br />
Photo: Nadia</p>

Goldman Sachs just can’t help but court controversy, after Abacus, Greece, and Libya (just to name a few), the venerable Wall Street firm has once again found itself embroiled in yet another scandal, and this time, it’s with Malaysia. According to the Wall Street Journal, the FBI and the U.S. Justice Department are both looking into the Goldman’s role “in

<p>Speaking at Fortune's Most Powerful Women Summit, former activist investor Warren Buffett had some pretty nice things to say about activism. Activist funds however seem to continue drawing his ire, especially when it comes to the fees they garner. “They’re like sharks, they got to keep swimming.”</p>
<p>Photo: Fortune Live Media</p>

<p>With the closure of Michael Novogratz’s Fortress Macro Fund splattered all over the news, Bill Gross, the former bond king and renowned ruminator of all things doo-dooey, had some pretty interesting things to say on his twitter feed:</p>
<p>Gross: Story of The Day - Deep out of the money hedge funds shut down if 20% of profits out of reach. Start over later with clean slate!<br />
— Janus Capital (@JanusCapital) October 13, 2015</p>
<p>Interestingly, here’s how PIMCO’s Total Return Bond Fund did prior to his jump to Janus.</p>
<p>Pot, meet kettle.</p>
<p>To be completely fair though Total Return’s performance really wasn’t the disaster people were making it out be, although it definitely was a far, far cry from its former glory.</p>
<p>Still, with all the Mills and Boonery following his departure from PIMCO, his new fund's constant outflows, and the lack of uncomfortable, personal musings in his monthly outlook, somebody should really go check on him. These antics of his are starting to get a little out of hand.<br />
Photo: Janus</p>

<p>Updated throughout the day</p>
<p>October 14</p>
<p>Good evening everyone. Asian equities extended their declines today as inflation figures from China, Japan, and India all added to worries that deflation is on the horizon. The Hang Seng Index ended the day down 0.71%, while the Shanghai Composite and the Nikkei 225 finished the session down 0.91% and 1.89% respectively. As for the rest, here’s how they fared:</p>
<p> Hang Seng China Enterprises Index: -0.99%<br />
Shenzhen Composite: -1.20%<br />
Straits Times Index: -0.37%</p>
<p>Over in Europe, things aren’t looking too hot either. The FTSE 100 – at pixel time down 0.65% – seems to be on the way to its third straight decline, while the DAX and CAC – saying goodbye to what was a decent start to the month – are currently down 0.79% and 0.67% respectively.</p>
<p>Here’s what else you need to know:</p>
<p>U.K. unemployment falls to seven-year low. Guess it wasn’t all bad news in fair Brittania. The U.K.’s Office of National Statistics has just reported that the region’s unemployment rate has fallen to 5.4% – a level unseen since the March quarter of ’08, while the employment rate – the proportion of people aged from 16 to 64 who were in work – climbed to 73.6%, its highest since recording began in 1971. Inflation was pegged at -0.1% yesterday though, take note of that, Janet. Office of National Statistics</p>
<p>Japanese producer prices fall to a near six-year low. Japan’s producer price index fell 3.9% from a year ago in September, punching in its sixth-straight month of price deflation and posting its worst decline since November 2009. That 2% inflation rate target set by the BOJ looks even further away now. MarketWatch</p>
<p>China CPI misses estimates. The consumer price index in the world’s second largest economy came in at just 1.6% for September, well below August’s 2% reading and less than the 1.8% analysts were expecting. The producer price index meanwhile fell 5.9% from the year before, in-line with estimates. Barron’s</p>
<p>Singapore weakens the SGD. Despite seeing its economy – widely expected to contract – narrowly escape recession, the Monetary Authority of Singapore decided to ease its monetary policy today by weakening the dollar “slightly.” While its GDP figures were better than expected – its June quarter data was also revised higher from -4% to -2.5% – on a year-on-year basis, growth has been measly 1.4% – its weakest showing since 2009. Monetary Authority of Singapore / Ministry of Trade and Industry (pdf)</p>
<p>PBOC clips yuan’s eight-day winning streak. The yuan lost most of its hard-earned gains today as the People’s Bank of China fixed its mid-point price down 0.3% to 6.3408 to the dollar. Offshore yuan was trading as high as 6.3487 against the greenback. SCMP (paywall)</p>
<p>Vehicle sales climb for first time in six</p>

<p>Updated throughout the day</p>
<p>October 13</p>
<p>Good evening. U.S. stocks dipped lower as Intel and JPMorgan report their earnings. The Dow fell 0.3%, the S&amp;P 500 dipped 0.7%, and the Nasdaq lost 0.9%. Oil fell slightly, finishing below $47/barrel. Johnson &amp; Johnson reported mixed results as sales on its hepatitis C medicine disappointed and the strong dollar hurt profits.</p>
<p>&nbsp;</p>
<p>Here’s what else you need to know:</p>
<p>Mark your calendar: The first democratic debate kicks off Tuesday at 8:30 p.m. ET. It's Hillary vs. Bernie and those other guys. Broadcast live on CNN.</p>
<p>JP Morgan shares fall. JP Morgan Chase kicked off Wall Street's earnings reports slightly below expectations. The bank reported earnings of $1.32 per share and $23.54 billion in revenue, a 6% fall from last year's net revenue. Analysts had expected $1.37 per share on $23.69 billion in revenue. CNBC</p>
<p>Intel reports earnings. The California-based tech company reported 64 cents per share on revenue of $14.47 billion, beating expectations. Analysts had been predicted at 59 cents per share on $14.22 billion in revenue. Shares for the company jumped up 1.8%. CNBC</p>
<p>&nbsp;</p>
<p>CIA psychologists sued. A federal lawsuit was filed on behalf of three men imprisoned and allegedly tortured by the CIA. The two psychologists designed and helped oversee the CIA's interrogation programs. CNN</p>
<p>J&amp;J better than expected but not good enough. The company posted 3Q net income of $1.20/share; revenue shrank to $17.1 billion, slightly below $17.41 predicted. The company announced a $10 billion stock buyback and lifted the profit outlook. The stock slipped 21 cents to $95.78. ABC News</p>
<p>No phone for you! JPMorgan says it will stop paying for employee Blackberrys (and other devices) in a cost-cutting move. The bank expects to save tens of million of dollars. JPMorgan reports earnings after the close Tuesday. Wall Street Journal (paywall)</p>
<p>Exports fall 3.7% and imports collapse in China trade data. China’s trade surplus widened to $60.34 billion from $60.24 billion in August, a massive jump from the $46.79 billion narrowing expected by analysts. The surplus was largely fueled by a 17.7% dive in imports, indicating that China’s shift to a consumer economy isn’t going as planned. And exports slowed Business Insider</p>
<p>EM currencies slammed. The post China import bloodbath seemed claimed the Malaysian ringgit and the Indonesian rupiah; both tanked at least 1% against the dollar, while the Philippine peso and the Indian rupee lost at least 0.5%. The aussie meanwhile, right after clocking in a 9-day recovery, plunged nearly 0.9% to AU$0.7296 versus the greenback.</p>
<p>Goldman calls EM turmoil 'third wave' of financial crisis. Collapsing commodity prices and the threat of higher rates in the U.S. are hitting emerging markets countries hard. The first wave of the crisis was spurred by the disintegration of the housing market in the U.S.</p>